White Paper - Innopartners Strategy & Plan 2013-04-18

7/30/2019 White Paper - Innopartners Strategy & Plan 2013-04-18

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2013 Innopartners LLCAll Rights Reserved

Updated: 18 April 2013

150 Mathilda Place, Suite 450Sunnyvale, CA 94086

+1 (408) 328-2900

Innovation Center

Joon LeeAngel Orrantia

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CCCooonnnttteeennntttsssExecutive Summary ....................................1

Areas of Interest ......................................... 2Problem Statement ..................................... 3

Traditional Venture Model ........................ 3Innovation Center Model ........................... 3

Selecting the Entrepreneurs ............................... 5Startup Formation .............................................. 5

Funding ....................................................................... 5Services and Facilities................................................ 5

Seed Phase Operation ........................................ 6Startup Phase Operation .................................... 6

Spin-In Path ............................................................... 7Call Option ............................................................ 7Put Option ............................................................. 7

Venture Capital Path ................................................. 7Stand-Alone Path ....................................................... 8

Strategic Rationale ............................................. 8Entrepreneurs ............................................................ 8Strategic Partners ....................................................... 8Venture Capitalists .................................................... 8

Summary .................................................... 9

Executive Summary

The Innovation Center by Innopartners LLC is a

revolutionary way to both seed new startup companiesand accelerate their development. Carefully selectedentrepreneurs will be granted:

1. Access and routine collaboration with the topresearchers at a Strategic Partner

2. Initial funding and guidance through the initiaphase of operation.

3. Space at the state-of-the-art facilities within theInnovation Center

Strategic Partners have the opportunity to acquire tailormade startups. The Strategic Partner describes theproduct that needs to be developed and Innopartnersseek out entrepreneurs to form the startup and deliverthe product. Alternatively, entrepreneurs withinnovative ideas present their project proposal toInnopartners who then seek to make a match with aStrategic Partner.

Venture capitalists benefit by investing in startups in alow-risk environment with shorter time-to-moneyhorizons. The Innovation Center provides theprofessional services, administrative assistance

program management, state-of-the-art-facilities andtools which leaves the entrepreneurs free to focus100% of their time and energy into developing theirproduct. Moreover, Innopartners and Strategic Partnerwill set the time-based milestones for the start-up toensure success in a shorter period of time than astartup working alone.

Using this model, Innopartners intends to revitalize anotherwise dwindling investment ecosystem forsemiconductor startups. Entrepreneurs receive funding

and guidance to aid in their success. Strategic Partnersreceive the opportunity to acquire a startup that wastailor made to their specifications. Venture Capitalistsreceive access to low-risk investment opportunitieswith shorter time-to-money.


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Areas of Interest

The Innovation Center is focused on bringing the most innovative and inspiring concepts in nanotechnology to life.

Examples of subject matter eligible for funding by Innopartners LLC include:

Semiconductor/Components New Memory based Storage solution/system (e.g.

STT-MRAM)

Memory (DDR) Controller Solution Nanomaterial technology Advanced Image sensor/Camera solutions (e.g.

Computational Photography, 3D Sensing, highperformance HDR)

Application Processors (e.g. GPGPU, New SoCArchitecture Technology)

Power Management (e.g. Fast & High-efficiencyWireless Charging, Battery Management, EnergyHarvesting)

Device Solutions Mobile security, BYOD Wearable device, Augmented Reality, Context-

Awareness

TrustZone based Content DRM Telecommunication/Network

Internet of Things (IoT)/M2M, Low powerconnectivity for sensor network

Small Cell (e.g. Heterogeneous N/W Technology,New Service Technology based on small cell), softcell

Interference alignment, Massive MIMO/3D beamforming, Active Array Antenna

Software defined radio Software defined network / Contents-centric

network

Network virtualization, Self-organizing network,Analytics-based traffic management

Packet optical transport network / Optical accessnetwork Multi-gigabit Wireless LAN, NFC Indoor positioning Smart Box (e.g. IPTV Set-Top box, Video Post

Processing)

IMS Service Continuity Group Call (or Mobile Conference Call) Solution

IT Enterprise SSD Storage Solution (e.g. Caching,

Virtualization, Flash-aware RAID, Cloudmanagement based on open source software, andData: De-duplication, Compression, Encryption,Snapshot,)

In-memory computing High-performance computing architecture for next-

generation IT infrastructure

Hybrid Cloud Big-data analytics platform (e.g. Interactive and Real

time Analysis, Graph Processing, Visualization)

Healthcare Device/BioInformatics Immunoassay Reagent (e.g. New Biomarker,

Antibody Technology)

MDx Reagent (e.g. New Biomarker, PCRTechnology, Primer Technology)

Mobile Sensing Device Non-invasive Testing OMICS data analysis and modeling (e.g. multivariate

data analysis)

NGS-based cancer mutation profiling (e.g. Cancerrelated somatic variants calling)

Personalized genome analysis (e.g. Disease riskprediction)

Non-invasive prenatal diagnosis (e.g. Maternalblood-based fetal DNA detection)

NGS-based liquid biopsy (e.g. Circulating TumorCell detection, Cell-free DNA detection)

Nanopore Sequencing Emerging Technologies

Next Generation User Interface (e.g. EmotionRecognition, Speech-based Multimodal Interface,Speaker Identification / Verification, Map / ReduceParallel Computing, Text Semantic Analysis)

Video Analytics (e.g. Object Recognition, Behaviorand Gesture Recognition)


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Problem Statement

The relentless adherence to Moores Law led to the consolidation of the semiconductor market. As geometries

shrink to the atomic scale the cost of research & development climbs astronomically under constant price pressures.The barriers to enter this ruthless ecosystem grow larger every day.One barrier is access to capital for entrepreneurs. As VentureCapitalists increase funding for cloud companies, green tech, andbio-tech they decrease funding for semiconductor ornanotechnologies. In 2003, 44 startups received initial funding fromVenture Capitalists. By 2011, that number had plummeted to 3.

The Innovation Center by Innopartners LLC provides much neededcapital and resources to not only fund innovative entrepreneurialprojects, but also accelerate their product development.

Traditional Venture Model

The historical model for Venture Capital requires myriad investments across a multitude of startups. One win,defined as a 10x or more return, compensates for the 50-70% failure rate among a VCs startup portfolio. AVenture Capitalist realizes the gain when the startup is acquired or goes public through an Initial Public Offering.As the period to qualify and validate new technologies pushes out, the time-to-money for the VCs also gets pushedout.

Due to consolidation in the semiconductor market and a general malaise in the stock market for IPOs, exitingnanotechnology startups has gotten more difficult as a simple function of supply and demand. Additionally, as thegeometries of semiconductors shrink, the R&D costs climb. The higher cost to enter further decreases the Venture

Capital communities appetite to invest in semiconductors.

With fewer, higher-cost investment opportunities available to VCs coupled with limited exit strategies, its notsurprising that venture funding is flowing into other market segments.

Innovation Center Model

While Venture Capitalists may shy away from investing in semiconductors, there is still a need to continueinnovating. Breakthroughs and discoveries at the device level are the lifeblood of the connected world. TheInnovation Center breathes new life into a failing echo system that benefits entrepreneurs, established strategicpartners, and Venture Capitalists.

Figure 1 - Nanotech Startups Receiving Initial Funding


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At a high level, the Innovation Center will provide seed funding, professional services and state-of-the-art facilitiesto selected entrepreneurs who then become an Entrepreneur in Residence (EIR). Once an EIR has sufficient datato support their planned project, there will be three paths to additional funding and then three paths to exit.

Additional Funding Paths Exit Paths

1. Spin-In: Match with Strategic Partner andadditional funding from VC, if necessary

2. Traditional VC Path: funding from one ormore VC firms

3. Stand-Alone: NRE and/or JointDevelopment from Strategic Sponsor

1. Spin-In: Acquisition by Strategic Partner1

2. Spin-Out: Acquisition by another acquiror3. Venture: Additional funding from

traditional capital sources

1 Preferred method of exit

Stage1:Seeding Stage2:StartUp Stage3:ScaleUp

SPSpinIn

3rd PartySpinOut

IPO

InnovationCenter

Spin

In

Path

TraditionalVCPath

Predefinedmilestonesetting

&exitvaluation(~3xReturn)

SPcalloption&EIRputoption

Timebound23years

Nopredefinedexitvaluation

(~10xReturn)

SPhaveneitherspecialright

norobligation

Timebound58years

StandAlonePath

Minimalornostartupfunding

SustainthroughJDorNRE

fromSP

StayinsideInnovation Center

VentureCapital

Createaspecialpurpose

startupwith

agreements

from

Entrepreneur,Strategic

Partner,andVC

SP

StartupFormation

EIR*

VC*

StrategicPartner

BusinessModel

Returnfromequityupon exit

ShareofNRE/JD

Startupmergesinto

StrategicPartner

2~3years


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Selecting the Entrepreneurs

The EIRs will be selected from two pools. In the first instance, a Strategic Partner (SP) requests Innopartners todevelop a specific innovative product. Innopartners then seeks out entrepreneurs capable and interested indeveloping the product. In the second instance, an entrepreneur proposes a project to Innopartners who then work

with the Strategic Partners to make a match.

From these two pools, the projects are evaluated based on strategic fit, technological impact, potential financialreturns, and likelihood of success. The selection is made by the Innovation Committee:

StrategicPartner

Strategic Partner(SP)

Venture Capital(VC)

InnovationCommittee

Members

SK TelecomAmericas President

SP CEO / CTOSP BU Head / CSO


VC General Partner

Startup Formation

Once an entrepreneur is selected as an Entrepreneur in Residence, a startup corporation will be formed inpartnership with Innopartners LLC. The ownership of the new startup company will divided approximately asfollows: 75% to the entrepreneur, founders, and employees; 25% to Innopartners LLC.

Funding

The initial seed funding of the startup ranges up to $1 Million provided to the company in the form of a promissory

note, to be used as working capital, along with in services, state-of-the-art facilities and tools.Services and Facilities

Separate & dedicated office space with secureaccess

Shared conference rooms, lab, media room,and lobby

Legal counseling for startup formation, patentfiling, contract review, etc.

Accounting/finance (including payroll), HR(recruiting), IT (video conferencing,broadband access, mail server, storage server,etc.), and receptionist

Development tools (EDAs)

Business plan development professionals atthe Innovation Center work together withentrepreneurs to develop a solid business plandesigned to be appealing to both strategicsponsors and VCs

Project management professionals atInnovation Center help the startupsdevelopment project plans to ensure

milestone objectives are met Access to VCs SKs internal VC and other

affiliated top tier VCs to secure Series Afunding

R&D service in-house R&D team help thestartups to get latest intelligence, related IPs,etc.


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Seed Phase Operation

At the Seed Phase of operation, the startup, together with the professionals and support teams at the InnovationCenter, develop the product, business plan, milestones and metrics to deliver the product to market. During theSeed Phase, patents are filed, simulation data is collected and analyzed, and prototypes are built and tested.

The Seed Phase should last 6 to 12 months. At the conclusion of the Seed Phase, the projects that show the mostpotential evidenced by progress against milestones, quality of simulation data and test results will be selected toreceive Series A funding to progress on one of three exit paths.

Exit Paths1. Spin-In: Acquisition by Strategic

Partner2

2. Spin-Out: Acquisition by anotheracquiror

3. Venture: Additional funding fromtraditional capital sources

The selection will be made by an Innovation Committee comprised as follows:

StrategicPartner


Venture Capital(VC)

InnovationCommittee

Members


SKT CEO / CTOSKT BU Head /

CSO

Startup CEOVC General Partner


VC General Partner

Startup CEO

The Innovation Committee sets the funding level, source for funding, and milestone triggers for funding.Additionally, the Innovation Committee will set the preferred exit option.

Startup Phase Operation

There are three paths a startup may proceed on during the Startup Phase Operation. The startup would continue todevelop the technology leveraging the Innovation Center generally, and the Innovation Center R&D Team

2 Preferred method of exit


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specifically. Although the development work under each would not differ significantly, the goals of the StartupPhase Operation do differ.

Spin-In Path

The preferred path for the startups is to proceed down the Spin-In Path where the ultimate objective is for theStrategic Partner to acquire the startup.

On this path, the Innovation Committee sets the milestones and deadlines, and determines the exit valuation rangefor a successful development. The Spin-In Path of the Startup Phase is time bound with an expectation of 2 to 3years.

If the startup proceeds down this path, the Strategic Partner receives a Call-Option and the startup receives a Put-Option whereby the Strategic Partner acquires the startup at the conclusion of the Startup Phase within the pre-negotiated exit valuation range depending on the milestones met.

Call Option

At the conclusion of the Startup Phase Operation, the Strategic Partner may exercise the Call Option. Theacquisition price will be determined by the milestones achieved during the Startup Phase and will be within thenegotiated exit valuation range.

The decision to exercise the Call Option will be determined by the Innovation Committee comprised of:

StrategicPartner


Venture Capital(VC) if needed

InnovationCommittee

Members


SP CEO / CTOSP BU Head / CSOStartup CEOVC General Partner


VC General PartnerStartup CEO

If the Call Option is not exercised by the Strategic Partner within 3 months of completion of last milestone, thenthe startup may pursue other avenues to be acquired or secure additional funding.

Put Option

The Put Option guarantees the startup that it will be acquired 6 months and 1 day after the Call Option expires.This Option presumes the startup was unable to attract an acquiror or secure funding on acceptable terms. Thepurchase price, just as with the Call Option, will fall within the exit valuation range depending on the milestonesachieved.

Venture Capital Path

On the Venture Capital Path, no exit valuation range is pre-negotiated. The Strategic Partner and startup have nospecial rights or obligations. The time boundary is expected to be anywhere from 5 to 8 years. Put simply, this path


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follows the traditional venture capital model where Venture Capital firm(s) continue to fund according to themilestones met. The ultimate objective of a venture backed startup is to be acquired or go public (IPO).

Stand-Alone Path

Following the Stand-Alone Path, the startup receives minimal Series A funding. Rather, the startup is fundedthrough joint developments with a Strategic Partner or Partners. Depending on the level of funding, the startupsmay remain within the Innovation Center or relocate to a more suitable location. For this Path, there is not a timeboundary estimated. The ultimate objective for startups on this Path is to be acquired or IPO.

Strategic Rationale

The Innovation Center model works because it offers something that does not exist in the startup fundingecosystem and it offers benefits to entrepreneurs, strategic partners, and venture capitalists.

Entrepreneurs

Given the lack of funding flowing to semiconductor startups, entrepreneurs have the most to gain. Not only do

they receive funding, they also receive additional benefits.

First, the entrepreneurs are provided with professional services along with state-of-the-art facilities and tools. Theentrepreneurs time and energy is focused on product development rather than ancillary activities associated withsetting up a new company.

Second, the entrepreneurs may be offered a guaranteed exit path with a set exit valuation range for completing themilestones they themselves negotiate prior to endeavoring to begin their project. This guarantee is offered to thosestartups chosen to participate on the Spin-In Path where the Strategic Partner acquires the startup.

Third, for those startups acquired from the Spin-In Path, the entrepreneur will continue leading the business at theStrategic Partner.

Finally, and most importantly, the opportunity for success could not be better. Not only will the entrepreneur be inposition to accelerate their development through the assistance of the Innovation Center, but also through closeand regular collaborations with the Strategic Partners R&D Teams. This collaboration provides the entrepreneurwith the most up to date process parameters, state of the art IP, and insight into inflection points for both themarket and technology.

Strategic Partners

The benefits to strategic partners are both nuanced and quantitative. At the most nuanced extreme, reinvigoratingnanotechnology startup innovation benefits the entire semiconductor industry. More specifically, however, theability to secure custom tailored innovative technologies in a low-cost, high-speed time-to-market environment

provides a competitive advantage and quantifiable benefits in time saved and profits earned. Even if the StrategicPartner ultimately elects not to acquire a startup, the potential exists for that startup to dramatically influence theindustry to the Strategic Partners benefit.

Venture Capitalists

The Innovation Center offers venture capitalists access to lower risk deals and faster returns on those deals. Typicalventure investment is approximately 5 to 8 years. The Spin-In Path is a mere 1 to 2. Few investments made by


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venture capitalists have a guaranteed return. For participating in funding a Spin-In Path startup, just like theentrepreneur and the strategic partner, the venture capitalist is guaranteed a return within the exit valuation range.

Summary

Innopartners Innovation Center concept is a revolutionary way to fund and accelerate semiconductor development.Entrepreneurs are free to focus 100% of their time and energy into making a successful product and may receive aguaranteed exit valuation range as a reward. Strategic Partners secure the option to acquire tailor made startups onan accelerated development timeline with low up-front costs. Similarly, Venture Capitalists get access to lower riskinvestment opportunities with a shortened time-to-money.

White Paper - Innopartners Strategy & Plan 2013-04-18

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